Finance on Used Cars: All You Need to Know

Snapshot: In some cases, the used cars can be quite expensive and there is a need to finance them. Here we bring to you tips around how financing used cars works!

Most people go in for buying used cars to limit the cost of the vehicle. In such a case it is best to buy a pre-owned car without financing it. But in some cases, the used cars can be quite expensive and there is a need to finance them. The Financing of Used car is available from private lenders as well as from dealerships.

Direct Loan
Getting a direct loan is the best possible way to raise finance for an expensive used car. Before applying for financing, you should be ready for a copy of your credit report and credit score. The loan is approved only after your credit report is found to be satisfactory.

Local Banks and Credit Unions
Many lenders offer 5 year loans on used cars. But if the vehicle is more than five years old, you may be eligible for just 1 or 2 year loan. Often, the lenders impose minimum mileage restrictions and do not finance salvage-tilted vehicles. They lend funds only when you purchase a used vehicle from a franchised dealership and not through a private party or independent dealer. The rates of interest on used cars are generally 4 to 6 per cent higher than the interest rates offered on new car loans.

So you should be prepared to give more interest and should solicit rate quotes from several lenders before taking the final decision. The interest rates on used cars are higher because the lenders know that they can get away with it. Also since the value of the used cars is lower and the loan period is shorter, the lenders hit you with a higher interest rate to make the deal worthwhile to them.

Dealer Loan
This is another common type of vehicle financing in which you get financing through the dealership. You and the concerned dealer enter into a contract where you purchase the vehicle and agree to pay, over a period of time, the amount of finance plus the interest. The dealer may retain the contract or sell it to a finance company, a bank or a credit union.

Dealerships often offer higher interest rates than direct lenders. In case you are not able to secure Direct Loan then asking a dealership for loan should be the next option. Dealers sometimes quote a higher interest rate than is prevalent in the market and keep additional profits. You should be aware of such interest padding and therefore apply for a Direct Loan first. Also, the dealers usually finance any used car that they sell, regardless of its age. In this light also, it is better to apply for a Direct loan first.

Down Payment
By offering a down payment in cash that is equivalent to 10% of the purchase price of the used car will increase your chances of getting the dealer approval.